Making Tax Digital for Income Tax

From April 2024, self-employed individuals, partnerships and landlords currently reporting under self-assessment will be required to switch to the MTD reporting regime.

Essentially what this means is, instead of submitting an annual tax return by 31 January following the tax year, there would be six separate submissions to HMRC, with further requirements for digital record keeping.

Whilst the additional reporting requirements may be perceived as a burden on those affected, many individuals could also see benefits in switching to a digital system.

Making Tax Digital Flowchart for Income Tax

Use this flowchart to find out if and when you need to comply.

The Quarterly Reporting System

Part of the switch to digital reporting includes the requirement to submit quarterly income and expenditure reports to HMRC.  This will allow HMRC to update your personal tax account with a tax estimate for the year, allowing individuals and businesses to plan more effectively for tax.

Following the quarterly submissions, individuals will then need to finalise their business accounts for the year, including the relevant accounting adjustments, in a further submission.

Finally, when the business records have been submitted in full, individuals will then need to submit a final declaration, to confirm all sources of income, and claim any available tax reliefs.

For businesses to submit updates to HMRC, compatible software will be required.  HMRC have pledged that there will be free software available to reduce the financial impact on businesses who do not wish to purchase additional accounting software above their needs, this is only likely to be available for the simplest of cases. Alternatively for simple rental property accounts with only a few properties Excel may be the solution using bridging software to make the submissions.

Digital Records

Another requirement from April 2024 will involve self-employed businesses and landlords keeping digital records.  The records can be maintained by software packages or spreadsheets and, assuming HMRC follow the same route with Income Tax as they have with VAT, we would expect a requirement to maintain digital links between the digital records and the submissions.

This effectively means that HMRC should be able to trace back the figures contained in the submission to the original records.  The digital links would be designed to reduce the level of human intervention with a view to reducing the number of errors in the submissions.

Next Steps

Prior to April 2024 we would advise all landlords and self-employed individuals to review their current record keeping and consider updating to a digital platform.  Although most accounting software comes at an additional cost there are several benefits which can be seen by switching to software such as:

  • Faster bookkeeping
  • Automatic bank feed
  • Management reports including profit and loss for the current period and yearly projections
  • Many providers will allow submission of quarterly updates directly to HMRC

Should you wish to discuss the benefits of moving to a suitable accounting package our digital solutions team will be happy to assist.  Please contact a member of the team via email at digitalsolutions@mooreandsmalley.co.uk.